September is a perfect time to save for college or training

Written by
Emily Stetson

Date
September 12, 2018

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image of middle school students

Join the September festivities for National College Savings Month!

As families settle into the day-to-day fall school routines, this is an ideal time to establish a habit of contributing to savings for your child’s FUTURE education. To remind families about the importance of saving now for college and career training, VSAC—the nonprofit administrator of Vermont's 529 savings program, the Vermont Higher Education Investment Plan—is holding a drawing during September for five (5) $100 college savings accounts and prize packages, including: tickets to UVM sporting events, hoodies and sweatshirts from the Vermont State College System, and passes to the ECHO Lake Aquarium and Science Center, Vermont State Parks, Vermont State Historic sites, and Vermont Lake Monsters games. Any Vermont resident OR any Vermont 529 account owner can enter the drawing for a chance to win. Sign up for the drawing and view the official rules.

And here are 5 more reasons why saving now for future college or training makes sense:

#1. Saving for college helps create future education opportunities & greater earnings.

Research shows that children from families who save up to just $500 for education are 3x more likely to attend college and 4x more likely to graduate, compared to those with no college savings. That’s an impressive difference, even when the savings are small. Setting money aside for future education increases a student’s expectations and supports a career mindset. Completing that education, in turn, can mean greater opportunities for the future, with more jobs at better earnings. See how more education = more options = greater earnings.

#2. Saving even a little adds up over time. And a 529 makes it easier to save.

529 plans were developed specifically for saving for college and career training costs, with tax advantages to make saving easier. The plans are named after Section 529 of the Internal Revenue Code.

Because 529 plans can be opened with only a very low amount (just $25), they’re accessible for families at all income levels. And by saving early and contributing regularly, families can be better prepared to help pay for college or other training when their children are older.

chart of Why save with a 529 Plan

With VHEIP, you can open an account with as little as $25 or give a gift of any amount to an existing account. “Vermonters need to continue their education after high school to be qualified for jobs in Vermont’s new economy,” notes Scott Giles, president and CEO of VSAC, the state-appointed administrator of Vermont’s 529 college savings plan. “By starting savings plans early, contributing regularly, and making smart investment choices, families can make their savings work for them while their children grow.”

#3. VHEIP is the only savings plan that offers a Vermont income tax credit.

As Vermont’s official 529 college savings program, the Vermont Higher Education Investment Plan is the only 529 plan that gives Vermont investors a state income tax credit on annual contributions: 10% of the first $2,500 contributed per beneficiary, per year ($5,000 contributed per beneficiary, per year, for spouses filing jointly). That’s a tax credit of up to $250 per beneficiary account per year ($500 per beneficiary per year for joint filers) for Vermont taxpayers saving for education.

So by contributing to your account, you can save now as you save for the future. Even if your child is already in college or graduate school or beyond, you can benefit from federal and state tax advantages.

#4. Saving in a 529 plan helps reduce education debt.

Because most families are unable to save 100% of the costs for college, students and their parents typically rely on education loans to pay for at least part of the college expense. By putting aside even a modest amount of savings now, families can reduce their reliance on loans, and earn interest rather than pay interest on money borrowed to cover those costs.

Say you need to borrow $100,000 to cover all the years of college or training. Here’s what that “cost” might look like:

Borrowing versus saving for college: What's the cost?

Saving vs borrowing for college: What's the cost?
Source: collegesavings.org/why-save-for-college
Assumptions: 8% interest and level payments over 10 years

 

Saving and investing for college -- instead of relying on loans -- can reduce what you ultimately pay.

#5. Saving in a 529 plan is preferable for financial aid considerations.

Many parents think that if they save for college or future training now, their child won’t receive as much financial aid. In fact, saving in a 529 account is advantageous for financial aid compared with other savings programs: Funds saved in 529 plans are considered the parent’s asset rather than a student’s asset for federal aid, so they minimally affect financial aid. Less than 6% per year of a family’s 529 savings are counted in the aid calculation, versus 20% of the student’s assets.

Read more about the Top Myths About 529 Plans at the vheip.org site as well as these other articles on how 529 plans and financial aid:

Have a question about saving, planning or paying for college or career training? Ask us! You can find more info about saving for college online, email us at info@vsac.org, or come see us M-F, 8:00-4:30, in the VSAC Resource Center in Winooski.

The Vermont Higher Education Investment Plan has more than 20,000 accounts worth over $373 million to pay for training and education after high school. Since 1999, more than 6,800 students have used over $166 million from the plan to pay their education expenses.